Getting a loan today is tough business. Lenders want to see perfect credit, long standing employment histories, and steady income, not to mention a low debt to income ratio and high down payments. In a perfect world, we would all have this, but unfortunately, that does not happen. So how do you get a loan, such as a 203K loan without having perfect credit? There are ways – you just have to know the ins and outs of this popular FHA program.
Several years ago the FHA started a program called the “Back to Work Program.” This new program was put together to help people that suffered a negative impact to their credit due to issues that were not their fault. Because the economy as a whole went down the tubes, many people suffered even though they did not do anything to jeopardize their job. These people were left without their standard income and were forced to file for bankruptcy and some even had to give up their homes. Rather than leaving these people homeless or forcing them to rent, the FHA created the “Back to Work Program.” This program enables people to get a mortgage just 12 months after their negative financial issues, but there are stipulations to this rule. Here are 3 reasons you can get a FHA 203K loan just 12 months later.
You Lost 20 Percent of your Income
You have to be able to document that you lost at least 20 percent of your income. This is fairly easy to prove with W-2s from the time period that you lost your job or were downsized. If you cannot provide W-2s, many lenders will accept a verification of employment from your previous employer showing the decrease in income and the reason. The most typical reasons are a company closing or the need to downsize. Maybe you did not lose your job, but you were given a lower paying job just to keep you employed. Regardless of the actual event, you need to prove that your income was decreased by 20 percent and that it lasted for at least 6 months. If you can tie the decreased income into the time period when you suffered bad credit, whether a bankruptcy, foreclosure, or just late payments, you might be able to get a FHA loan sooner than you thought.
You Filed for Bankruptcy
If your bills got to be too much and making ends meet was near impossible, bankruptcy was probably your only option. While it might make you feel guilty or as if you are chained to your bad credit for the next 7 years, there is light at the end of the tunnel. You can purchase a home that needs fixing up and finance it with a 203K loan just 12 months later as long as you can prove that the BK was a result of the bad turn the economy took; this ties into the need to prove that you had a 20 percent decrease in your income. If the two issues took place simultaneously, then you can typically get a 203K loan just 12 months after the discharge date. It is best to work hard to bring your credit score back up so that you can get a lower rate, but generally, FHA loans are not incredibly expensive, which means even with a BK in your past, you can still get a decent rate.
You Lost your Home
Losing your home is something no one wants to experience, yet thousands of Americans suffered from this issue not too long ago. If the bank had to take your home back, you are not stuck being a renter for the rest of your life. The FHA 203K loan is available just 12 months after the foreclosure if you are able to prove that the foreclosure was out of your hands. If you were not directly responsible for losing your home, which means things like getting fired or mismanaging your money, then you can get some reprieve in order to be a homeowner again. Because the 203K loan enables you to fix up a home with the first mortgage, you can purchase a less expensive home that needs some work in order to save yourself some money as you try to build yourself back up.
The 203K loan is a great way to get back into the swing of things as a homeowner without a huge commitment. Yes, you are taking on a new mortgage, but it is one that will allow you to fix up a home, which means your ability to purchase a less expensive, run down home is greater. You can purchase the cheaper home and fix it up for less than what a home that does not need any fixing up would require. As long as you have the proof that the bad credit you have was no fault of your own, getting a new FHA loan is not impossible.